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How Nonprofit Institutions Can Improve Local Economies

Can a hospital’s economic development strategy do more to heal a city than its emergency room? This question was at the core of a MIT-University of Maryland (UMCP) case study of University Hospitals’ (UH) Vision 2010 program in Cleveland, Ohio.

On May 8, the MIT Community Innovators Lab (CoLab) and UMCP’s The Democracy Collaborative co-hosted a community forum on the MIT campus to release the key findings of The Anchor Mission: Leveraging The Power of Anchor Institutions to Build Community Wealth. This case study examined UH’s Vision 2010 program: a five-year, $1.2 billion strategic growth plan announced in 2005 that included core commitments to purchase locally and from minority- and women-owned businesses as much as possible during the largest expansion in the health system’s history.

To maximize its impact, UH established specific targets, hired a third-party organization to hold it accountable and voluntarily entered into a unique Project Labor Agreement to ensure buy-in from local trade unions. It has now started to apply these practices to purchasing throughout its entire supply chain, establishing a new way of doing business for the organization. Report co-author Ted Howard, Executive Director of The Democracy Collaborative, noted in his remarks that UH’s efforts “laid the groundwork for an extraordinary [citywide] Community Benefits Agreement that has really changed how business is done in Cleveland and what is acceptable for a corporate citizen in that city to do now.”

Report co-author Dr. J. Phillip Thompson from the MIT Department of Urban Studies and Planning (DUSP) added that “the first thing that struck me about the [Vision 2010] initiative was the determination on the part of the Mayor and [all of] UH’s leadership to build an inclusive economy in Cleveland.” (Farzana Serang from MIT DUSP was the lead and third author of the report). UH exceeded its targets for including minority- and women-owned businesses and managed to procure 92 percent of goods and services from local and regional firms.

The community forum featured a long list of notable participants, including Cleveland Mayor Frank Jackson and University Hospitals CEO Tom Zenty. Mayor Jackson remarked, “Since [Vision 2010], now when I talk to developers of major projects who want to do business in the City of Cleveland, I no longer have to talk to them about what is the right thing to do. They will come to me and say I know this is the right thing to do [but] I just don’t know how to get it done. And I’ll send them to UH.”

Other panelists included UH Chief Administrative Officer Steve Standley, former MIT Chancellor Phillip Clay, Harvard Business School Professor Rebecca Henderson, MIT Sloan School of Management Dr. Thomas Kochan and the former Associate Director of the Office of Management and Budget Dr. Xavier de Souza Briggs.

Dean Adele Naude Santos of the MIT School of Architecture and Planning, offered introductory marks, emphasizing the case study as an “exciting new approach to community economic development.” The premise of this approach is to leverage the resources of anchor institutions — place-based nonprofit and public institutions — that have a vested interest in the success of their surrounding community.

The most prominent anchor institutions are hospitals and universities, often referred to as “eds and meds.” Annually, these institutions spend more than $1 trillion on goods and services. When an anchor consciously reorients its business practices towards the benefit of the local economy, as UH did with procurement, the results can be significant.

Zenty noted, “Community and healthcare leaders are discovering that hospitals can help heal entire cities through economic development. By rethinking the way we do businesses and by being more purposeful, healthcare systems can create jobs and wealth by favoring local businesses wherever we can. We can overcome historical barriers that have kept women and minority businesses out of the mainstream. And we can earn the trust and goodwill of our neighbors so that we can better fulfill our nonprofit mission of helping and healing.”

Standley, who oversaw Vision 2010 for UH, focused his remarks on the significant lessons of this “very stabilizing economic development method” and how other anchors can learn from UH as they undertake major infrastructure projects. He noted that UH now purchases from more than 2,800 vendors in Northeast Ohio, up from just 750.

Professor Henderson highlighted the importance of the innovations highlighted in the case study. “I think many of us can see we are rapidly approaching a dead end with existing ways of business…I think this case study is a fantastic contribution to this literature. We should be doing a ton more research and teaching about it. I certainly will be teaching this case study…”

Dr. Kochan focused on three key takeaways from Vision 2010: the vital importance of setting specific goals, the benefits of distributed leadership and the remarkable fact that Vision 2010 was successfully implemented during a period of “enormous social pressures and conflicts in our urban environment.”

Several audience members asked about how local residents can more effectively engage their anchor institutions to be better stewards in their communities. Dr. Briggs suggested focusing on those who have the power and can make the decisions, such as the board of directors: “What do you know about each of the members of that board?…How many votes do you need? Who do you know who can get to each of the people in that room — at that table that you are not at?”

Zenty also noted recent Affordable Care Act provisions that require nonprofit hospitals to conduct community health needs assessments every three years. These documents must be publicly available to local residents, and can provide an opportunity for residents to voice their input.

Howard touched on the broader implications of this case study, posing: “While this has been extraordinarily significant for Cleveland and Northeast Ohio, perhaps the real significance is that it lays down a marker for thousands of other hospitals and universities about how they can conduct their business to benefit their communities, in particular low- and moderate-income neighborhoods…If UH could change the way it did business…why could not any hospital in the Boston area do that? Why could not any university in the Los Angeles area? Why couldn’t this become a norm for all anchor institutions?”

Why not, indeed.

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